In a written statement to parliament, culture secretary Andy Burnham said that in the period since the proposal was made, the future outlook of public service broadcasting in the UK had changed and cyclical conditions had exacerbated "the structural challenges that traditional commercially-funded public service broadcasters face".
He said: "The Government has therefore brought forward its timeline for decisions and is now committed to take a more comprehensive view on the future institutional and financial framework of public service broadcasting, including the future of Channel 4, early in 2009."
Burnham said that any new proposals for potential state aid were likely to be "more wide-ranging than a proposition relating specifically to Channel 4's switchover costs".
He said: "Against this background, the government has decided against proceeding with the notified proposals to provide assistance for Channel 4 in respect of its switchover costs."
Under plans announced in 2007, it was proposed that £14m of licence fee money would be diverted to Channel 4 to help plug a £150m deficit associated with the broadcaster's switch to digital.
Channel 4 subsequently released a statement supporting the government's decision to withdraw its proposal.
A Channel 4 spokesman said: "As the Government makes clear in its statement, broader decisions about the future framework of public service broadcasting will be made early in 2009 as part of its Digital Britain review.
"In light of the Government's accelerated timetable, it makes sense to seek any necessary approvals from the Commission for a single, all encompassing solution to support the UK's public service broadcasting system, rather than a series of small-scale proposals."
This article was first published on brandrepublic.com